Female founders continue to face unique challenges when seeking investments. The percentage of funds invested in female-led business in the UK dropped down from 15 in 2016 to 9 percent in 2017. Moreover, only 5.5% of all VC cash went into companies with a female founder.
1. VC firms
VC firms tend to be geared towards risk avoidance; they seek investments that ‘look’ safe. Venture capital firms being predominantly male, tend to invest in familiar social networks, which happen to be networks filled with men. Quick look at the statistics shows that women represent just 13% of decision makers in U.K. venture capital and a significant number of firms have no women representation at all. So due to the VC firms’ composition, they tend to fund individuals like themselves viewing them as more 'safe'.
Having looked at the statistic, a female founder might give up on ever receiving VC money and turn to banks for a loan. She might think it’s a safer solution. But the uphill battle does not stop here. Recent study by US based online loan aggregator Fundera found that “there is a consistent and systemic disparity in how men and women entrepreneurs can finance their small businesses. Women receive fewer, smaller loans for higher interest rates, and this doubtless contributes to their disproportionately small influence over the national economy.”
Another US online marketplace for small business funding, Biz2Credit, estimated that small business approval rates are 15%-20% lower for women-owned companies than they are for businesses owned by men. And yet again, female-led business are seen riskier, which results in lower credit scores and higher operating costs for women. Not the equality we are looking for.
On the pursuit of funding, female founder might turn to booming market of alternative financing. Crowdfunding platforms seem to be the place to go for women looking to finaly open the door of their businesses or expand their operations. PwC and The Crowdfunding Centre, having analysed over 450,000 seed crowdfunding campaigns, put together a report: Women Unbound: Unleashing female entrepreneurial potential. The report explores the experience of women raising finance through seed crowdfunding compared with more traditional finance raising routes.
PwC found that women outperform men in seed crowdfunding. Data shows that campaigns led by women were 32% more successful at reaching their funding target that those led by men. Even in the male dominated tech sector, where only 1 campaign in 10 is led by women, the female led campaigns turned out to be more successful.
In spite of the many successes, men raise substantially more finance and use seed crowdfunding more. Many female led business don’t reach their funding goals. This is because some of the female-led business are solving problems that men don't know exist, such as those related to motherhood or women’s health. Overwelming majority of investors on crowdfunding platforms are male, they fail to understand the financial opportunity and investment potential of businesses that solve problems they are unfamiliar with. Bottom line is that we are back to the diversity issue, there is not enough females investing money in startup business or even investing in general. Sadly, research shows women aren’t investing money anywhere. They are holding funds in cash and sometimes property but very few are investing in stocks and shares. Moreover, women are not being advised to invest by their financial advisers - who focus on investments with limited risk.
4. What's next
Turns out that women are not being advised to invest in startups, they are also not being told about the tax breaks. For instance, no one would advise women to invest in Facebook or Twitter if those two unicorns were just getting started. There is not enough women investors using the crowdfunding platforms as well as being part of the Angel market (only 14 per cent of angel investors are women). And here's where the mystery of female founding comes full circle.
More female investors will result in more female entrepreneurs to come forward to seek investment. Crowdfunding platforms, VC firms and Angel’s networks need more female investors who can spot the opportunity in startups created by women.
SHE Leads Company is a London based network of female entrepreneurs working to increase number of female led business and access to finance for women. If you want to support female led business get in touch firstname.lastname@example.org or visit https://www.sheleadscompany.com/workwithus